Pakistan to set guidelines for warehouse receipt financing

April 3 (Reuters) - Pakistan’s central bank has set up a working group to draft guidelines for warehouse receipt financing, to help develop a market for physical commodity trades and boost efficiency in the country’s agricultural sector.

The working group is chaired by central bank deputy governor Saeed Ahmad and comprises both commercial and Islamic banks as well as the International Finance Corp, the private sector arm of the World Bank.

Warehouse receipts are issued as evidence of ownership of specific physical commodities, and they can be used to ease the collateral constraints of traditional financing.

Pakistan’s Islamic banks could potentially use the receipts to conduct sharia-compliant lending and manage their liquidity, since many Islamic financial structures are based on ownership of physical assets. Pakistani regulators are encouraging stronger links between Islamic banks and the agricultural sector.

The central bank hopes warehouse receipt financing will help farmers and traders in a sector that suffers from a lack of infrastructure. Pakistan produces around 30 million tonnes of grains annually but storage capacity is a fraction of that amount, the central bank said in a statement on Wednesday.

The regulator said it wanted to develop storage capacity to reduce post-harvest losses, estimated at more than 10 percent for grains and up to 35 percent for fruits and vegetables.

Under a five-year plan to promote the Islamic finance industry, Islamic banks are being encouraged to allocate at least 5 percent of deposits or 10 percent of financing to the agricultural sector by 2015.

The central bank said the development of warehouse receipts would also pave the way for the linking of the country’s commodities markets with international commodities exchanges.

Development of a post-harvest financing system has started in collaboration with the Karachi stock exchange, the Pakistan Mercantile Exchange and other government bodies, the central bank said. (Editing by Andrew Torchia)